ITEM4.
02 |
NON-RELIANCE
ON PREVIOUSLY ISSUED FINANCIAL STATEMENTS OR A RELATED AUDIT
REPORT OR
COMPLETED INTERIM REVIEW.
|
(a)
On
June 19, 2006, after being advised by management of Schnitzer Steel Industries,
Inc. (the “Company”) that the Company’s management had changed its
interpretation of the application of Accounting Research Bulletin 51,
“Consolidated Financial Statements” (“ARB 51”) and Financial Accounting Standard
141, “Business Combinations” (“FAS 141”) to certain acquisitions by the Company,
the Audit Committee of the Board of Directors of Schnitzer Steel Industries,
Inc. (the “Company”) concluded that the condensed consolidated statement of
operations contained in the financial statements included in the Company’s
Quarterly Report on Form 10-Q (the “First Quarter 10-Q”) for the fiscal 2006
first quarter ended November 30, 2005 (the “First Quarter 2006”) and Quarterly
Report on Form 10-Q (the “Second Quarter 10-Q”) for the fiscal 2006 second
quarter ended February 28, 2006 (the “Second Quarter 2006”) should no longer be
relied on because of the need to restate certain items set forth therein.
The
condensed consolidated statement of operations needs to be restated because
of
an error regarding the interpretation and application of ARB 51 and FAS
141 in
consolidating the results of operations of the businesses acquired through
the
acquisition by the Company of the assets of Regional Recycling LLC (“Regional”)
and the Company’s purchase of GreenLeaf Auto Recyclers, LLC (“GreenLeaf”) and
THS Recycling LLC, dba Hawaii Metal Recycling Company (“HMR”) during the First
Quarter 2006. The Company had previously accounted for the operations
of these
businesses on a consolidated basis effective September 1, 2005 with a
corresponding deduction for the pre-acquisition operating results in
arriving at
net income, as opposed to accounting for them as of the acquisition date.
Due to
this error, certain line items included in the condensed consolidated
statements
of operations for the three months ended November 30, 2005 and the six
months
ended February 28, 2006 included in the First Quarter 10-Q and Second
Quarter
10-Q, respectively, are misstated. The Company’s management, including the
Company’s Chief Financial Officer and its Corporate Controller, who serves as
the principal accounting officer, and its Audit Committee, have discussed
this
matter with PricewaterhouseCoopers LLP, the Company’s independent registered
public accounting firm. The accounting error did not have any impact
on the
Company’s net income or net income per share in the previously reported
condensed consolidated statement of operations for the three months ended
November 30, 2005 and six months ended February 28, 2006, nor was there
any
effect on the previously issued condensed consolidated balance sheets
as of
November 30, 2005 and February 28, 2006, respectively, or consolidated
statements of shareholders’ equity or cash flows for the three and six month
periods ended November 30, 2005 and February 28, 2006, respectively.
However,
correction of the error requires restatement of certain previously reported
results, including revenue, operating income and income before tax for
the First
Quarter 2006 and the Second Quarter 2006, as indicated in the table below.
The
Company intends to file the amended First and Second Quarter 10-Qs in
July 2006.
Additionally, the Company has not completed its review of the effect
of the
restatement on its disclosure controls and procedures as required by
Section 404
of the Sarbanes-Oxley Act of 2002. The Company is continuing its assessment
as
to whether a significant deficiency or material weakness in its internal
control
over financial reporting exists.
SCHNITZER
STEEL INDUSTRIES, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited,
in thousands, except per share amounts)
|
|
For
the Three Months Ended
|
|
For
the Six Months Ended
|
|
|
|
November
30, 2005
|
|
February
28, 2006
|
|
|
|
(As
previously
|
|
|
|
(As
previously
|
|
|
|
|
|
reported)
|
|
(as
restated)
|
|
reported)
|
|
(as
restated)
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|
|
|
|
|
|
|
|
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Revenues
|
|
$
|
388,673
|
|
$
|
342,322
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|
$
|
791,958
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|
$
|
745,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
326,710
|
|
|
286,202
|
|
|
662,174
|
|
|
621,666
|
|
Selling,
general and administrative
|
|
|
41,990
|
|
|
40,323
|
|
|
78,627
|
|
|
76,960
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|
Environmental
matter
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
|
|
|
|
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Income
from wholly-owned operations
|
|
|
19,973
|
|
|
15,797
|
|
|
51,157
|
|
|
46,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income from joint ventures
|
|
|
1,752
|
|
|
1,752
|
|
|
2,138
|
|
|
2,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
21,725
|
|
|
17,549
|
|
|
53,295
|
|
|
49,119
|
|
|
|
|
|
|
|
|
|
|
|
|
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Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
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|
Interest
expense
|
|
|
(981
|
)
|
|
(435
|
)
|
|
(1,382
|
)
|
|
(836
|
)
|
Other
income(expense), net
|
|
|
64,441
|
|
|
55,518
|
|
|
65,130
|
|
|
56,207
|
|
|
|
|
63,460
|
|
|
55,083
|
|
|
63,748
|
|
|
55,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Income
before income taxes and minority interests
|
|
|
85,185
|
|
|
72,632
|
|
|
117,043
|
|
|
104,490
|
|
|
|
|
|
|
|
|
|
|
|
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Income
tax provision
|
|
|
(35,557
|
)
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|
(31,135
|
)
|
|
(46,148
|
)
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|
(41,726
|
)
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|
|
|
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Income
before minority interests
|
|
|
49,628
|
|
|
41,497
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|
|
70,895
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|
62,764
|
|
|
|
|
|
|
|
|
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|
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Minority
interests, net of tax
|
|
|
(153
|
)
|
|
(153
|
)
|
|
(302
|
)
|
|
(302
|
)
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|
|
|
|
|
|
|
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|
|
|
|
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Pre-acquisition
interests, net of tax
|
|
|
(7,945
|
)
|
|
186
|
|
|
(7,945
|
)
|
|
186
|
|
|
|
|
|
|
|
|
|
|
|
|
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Net
income
|
|
$
|
41,530
|
|
$
|
41,530
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|
$
|
62,648
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|
$
|
62,648
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|
|
|
|
|
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Net
income per share - basic:
|
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$
|
1.36
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|
$
|
1.36
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$
|
2.05
|
|
$
|
2.05
|
|
|
|
|
|
|
|
|
|
|
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Net
income per share - diluted:
|
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$
|
1.34
|
|
$
|
1.34
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$
|
2.03
|
|
$
|
2.03
|
|
|
|
|
|
|
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Forward-looking
statements
Certain
statements in this Form 8-K are “forward-looking statements” within the meaning
of U.S. federal securities laws. The Company intends that these statements
be
covered by the safe harbors created under these laws. These forward-looking
statements include, but are not limited to, statements about the
Company’s plans
to restate certain previously reported results and to file amended
quarterly
reports on Form 10-Q, as well as the expected timing thereof. These
forward-looking statements are subject to risks, uncertainties, and
other
factors that could cause actual results to differ materially from
future results
expressed or implied by the forward-looking statements. Important
factors that
could cause actual results to differ materially from the information
set forth
in these forward-looking statements include possible delays in the
preparation
of the amended quarterly reports on Form 10-Q and other factors,
some of which
are discussed in the Company’s most recent annual report on Form 10-K and its
most recent quarterly report on Form 10-Q. Many of these factors
and events are
beyond the Company’s ability to control or predict. Given these uncertainties,
readers are cautioned not to place undue reliance on the forward-looking
statements, which only speak as of the date of this Form 8-K. The
Company does
not undertake any obligation to release publicly any revisions to
these
forward-looking statements to reflect events or circumstances after
the date of
this Form 8-K or to reflect the occurrence of unanticipated events,
except as
may be required under applicable securities laws.